JP Morgan is over, and execs and bankers can pat themselves on the backs for having held the obligatory number of meetings. Some might even be planning a short vacation. In short, it feels like business as usual.
But wait. Has Bristol-Myers Squibb not just launched the industry’s fourth-biggest megamerger of all time, spending $74bn to buy Celgene? Do huge companies like Pfizer and Abbvie not still face productivity crises? The fact is that the Celgene takeout has caused a shift in the sector’s tectonic plates, and big pharma will have to adjust accordingly.
Take one of the most persistent industry rumours, that Pfizer, desperate for innovation and oncology, was looking to buy a wounded Bristol-Myers Squibb. A Bristol that includes Celgene takes that scenario off the table, at least in the near term.
It is not that Pfizer cannot afford an enlarged Bristol, but adding the Celgene business into the equation calls for a new set of assumptions, and big pharma is not known for acting quickly. Indeed, buying Celgene might have been a defensive move by Bristol to block a cheap buyout.
|Big pharma companies|
|Company||Market cap ($bn)|
|Johnson & Johnson||344.8|
|Merck & Co||191.3|
|*Includes new stock to acquire Celgene.|
If this is the case then Pfizer must find itself another target. Does it look at Astrazeneca again, for instance, or does it buy Abbvie, a company facing productivity issues of its own?
Abbvie will ring a bell with JP Morgan attendees as the only big pharma group to state categorically that it was looking to buy. Standard practice, of course, is for the executive teams of groups like Abbvie to deny that they are desperate for acquisitions, fearing that this would push up the price of targets, so the admission might have been a sop to investors worried about a lowball takeout.
This brings up a separate point, namely whether renewed fear of being bought triggers acquisitions of big biopharma groups, some with shrinking valuations. Ask the C-suites of Amgen, Regeneron, Gilead and Biogen whether they feel uncomfortable about becoming poison pills, though anyone wanting to buy the last of these should first wait for aducanumab to fail in 2020.
Such considerations are important in determining the future of Pfizer's big pharma peers, most of whom traditionally take their cue from Pfizer. It should also be noted that Pfizer has a new chief executive, Albert Bourla, who has yet to show his hand, and who will want to stamp his mark on the group in a way his predecessor Ian Read failed to.
For sure Pfizer wants to be in immuno-oncology, and its brightest hope, Bavencio, looks shaky. This drug faces a crucial first-line lung cancer readout in October, and Pfizer needs to have a plan B should this confirm Bavencio as a checkpoint also-ran.
A knockout blow would be to merge with Merck & Co, though valuation-wise the time to do that might already have passed, and culturally the companies are poles apart. Merck & Co itself must plan for the eventual decline in sales of Keytruda, though this is a nice problem to have and will not unduly worry current management.
Talking of oncology, what is Glaxosmithkline’s game? The UK group recently underscored its desire to be a bona fide pharma company, and it has spoken of cancer as a key focus. But its key assets here are underwhelming: the BCMA target will face a swarm of competitors, while Adaptimmune’s T-cell receptor work, to which it has rights, is an unproven area.
Sooner or later Glaxo will realise that it cannot go it alone: step forward Astrazeneca, a vulnerable group with a cancer pipeline. The renewed rationale for merging these two could be to avoid another approach for Astra from Pfizer, while at the same time proposing the politically appealing prospect of creating a UK national champion.
Again, timing will be key. Like Bristol and Pfizer, Astra finds its immuno-oncology plan in a delicate moment. And its C-suite has slowly been haemorrhaging executives; should its chief executive, Pascal Soriot, depart, the likelihood of it being bought would ratchet up.
This would come on top of the effect of the Celgene buyout in focusing the minds of biz dev teams keen to stay a step ahead, and in bringing forward the need to consolidate in oncology. Who knows, if it creates one or two especially strong cancer players then even Roche and Novartis will need to start talking again.
Pfizer’s previous big takeouts, Warner-Lambert in 2000 and Wyeth in 2009, both led to competitive acquisition flurries. The difference this time around is that Bristol has beaten Pfizer to the punch.